One Year Ago: Autoweb and CarsDirect Forge Online Alliance


Originally published on March 28, 2000 and brought to you today as a time capsule.


As competition in the online auto sales space continues to grow fierce, Internet car-shopping services Autoweb.com and CarsDirect.com have teamed up to try to capture a larger share of the market.

The alliance, announced late Monday, will include the launch of a co-branded direct buying service on Autoweb.com, placement of exclusive links between the two companies’ Web sites, and licensing of data content and tools. The companies also hope to create a new infrastructure that will enable them to partner on future product development.

The companies say they are getting in on a growing trend. According to a J.D. Power and Associates survey, 55 percent of Americans who buy cars this year will use the Internet at some point in the process, and the number is forecast to grow to 80 percent by 2003.

Under the agreement, Autoweb.com and CarsDirect.com will jointly develop a direct new car buying service on Autoweb.com. Consumers who use the site will be able to receive a fixed price on vehicles that interest them and conduct the entire automotive purchase process online.

Taking a Stake

Also under the agreement, Autoweb.com will become the only referral buying option for CarsDirect.com. CarsDirect.com customers will be able to link to Autoweb.com to list their used cars for sale.

Each company is taking an equity stake in the other. Autoweb.com will reportedly invest US$10 million in CarsDirect.com, while CarsDirect will invest $8 million in its new partner.

Service Key

The announcement of the new alliance comes at a time when online car sales have become somewhat controversial.

Just last week, the results of a study from CNW Marketing/Research showed that eight different Web sites, including Autoweb.com and CarsDirect.com, are routinely publishing inaccurate pricing for vehicles on their Web sites.

According to CNW Vice-President and General Manager Art Spinella, “Consumers who go online to do auto price comparisons or to collect information prior to going to the dealership are being horribly misled by many of the sites that are online. The prices are inaccurate and the ability to build or configure a vehicle that an auto company can’t build is too common online.”

More Roadblocks

The CNW study comes on the heels of a particularly negative assessment of the online auto business from Consumer Reports.

As reported in the E-Commerce Times, the magazine evaluated five sites, including Autoweb.com, and found that the industry largely does not live up to consumers’ expectations. In many cases, the potential customers do not receive requested price quotes within two days, and too often the prices quoted are not for the vehicles that were specified by the customer.

All of these negative evaluations have emerged at a time when offline auto dealers are aggressively working through state legislatures to trigger crackdowns on online auto sales.

Going Global

Last month, CarsDirect.com, backed by Dell Computer founder Michael Dell, announced its own plans to expand into Europe, presenting competition to rival Autobytel.com.

The demand for online car sales and information appears to be increasing in Europe, although it still lags behind the U.S. — mostly because fewer Europeans have Internet access. Online car sellers are especially attracted to doing business in the United Kingdom, where CarsDirect.com will begin its European operation, because the UK allows manufacturers and car-shopping Web sites to sell cars without using a dealership.

Strong Start

Separately, AutoWeb said first-quarter results will be better than previously expected because it did not need to hire as many people as predicted. Revenue for the Santa Clara, California-based company will be between $14 million and $15 million, 5 to 10 percent above original estimates, while first-quarter losses will be “at least 25 percent below” previous forecasts, or “less than $9 million” and “roughly in line” with the fourth quarter’s 33 cents a share.

The news, announced after the close of trading Monday, sent AutoWeb shares higher in early trading. The stock was up 1 7/8 to 10 1/16 fifteen minutes after the market opened.

Autoweb.com works with more than 5,000 dealers, manufacturers and other partners. CarsDirect offers research, pricing and customization, as well as financing and delivery services. Its Priority Dealer Network covers more than 2,000 franchised dealers.

CarsDirect investors include Idealab!, Capital Partners, Primedia Ventures, Foundation Capital, MSD Capital LP, Goldman Sachs, Morgan Stanley Dean Witter, Oracle Corp. and Soros Private Equity Partners LLC.

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